_The explosive growth of the Kingdom’s housing market

The residential market in Saudi Arabia continues to expand at a rapid rate, as evidenced by the persistent strong price acceleration. Indeed, Riyadh and Jeddah have seen apartment values accelerate by 18.5% and 7.3% respectively, over the last 12 months, the fastest pace of growth in five years.

Faisal Durrani January 17, 2022

The government’s drive to boost home ownership rates began in 2016, however house prices only began accelerating in 2019. And in fact, apartment prices in Riyadh have increased by 14.4% since 2019.

It is perhaps no surprise that some pressure points are starting to emerge in a market that has experienced no obvious price dampeners – quite the opposite is true thanks to programmes such as Sakani and Wafi that has seen 210,000 households benefit during 2021.

Villa price growth is starting to slow, and this may be linked to emerging affordability issues, combined with other structural changes in the market.

It’s not just affordability that’s becoming an issue, especially when it comes to villas. It is now also more culturally acceptable for a family to buy an apartment as their first home. Also, the young demographic of the country – 56% are below the age of 35, are expected to be less in favour of multi-generational living going forward, creating even more demand for housing. We are already witnessing a decrease in household sizes. Furthermore, with job creation rates accelerating in the Kingdom’s economic heart, Riyadh, demand for single-person dwellings is likely to accelerate, hinting at the start of a structural shift in the market’s demand dynamics.

“Home ownership has become more affordable since the launch of the National Transformational Plan”

Counterintuitively, home ownership has become more affordable since the launch of the National Transformational Plan. Two-bedroom apartments for instance, on average, cost 2.4 times annual incomes, compared to a multiplier of 2.7 back in 2016, well within globally accepted affordability thresholds. While villas too have become more affordable, they can still cost anywhere between 7-12 times annual incomes.

Coupled with the affordability challenges, social changes are expected to drive demand away from traditional standalone villa properties, with smaller units, where community and lifestyle are at the heart of developments, offering modern comforts, set to reshape the residential landscape in the Kingdom.

Despite the affordability issues for larger homes and shifting demand-supply dynamics, our outlook for the sector remains buoyant, not least because of the limited supply pipeline, which is expected to add 730,000 homes to Riyadh by the end of 2030, which is a shortfall of at least 420,000 homes according to our estimates.

Elsewhere, Jeddah’s residential market has seen apartment prices surge by 11.7% over the last 12 months, also the strongest rate of growth in at least five years. Villa prices on the other hand have risen by just 1.3% over the same period.

The disparity in Jeddah’s residential market is in large part down to affordability issues, with villas in Jeddah costing upwards of 12-times annual incomes.

Mirroring the Jeddah market, average apartment prices in the Dammam Metropolitan Area (DMA) have risen by 5.5% in the year to Q3 2021, while average villa prices have declined by 1.9% over the same period.

Unlike Riyadh, however, developers are responding with a growing number of townhouse projects emerging as an alternative option for first-time buyers. These are being priced at a more affordable level (c. SAR 1,000,000 vs. average annual incomes in DMA of SAR 215,000), which we believe will help in bridge the affordability gulf in DMA’s residential market.

Discover the full Saudi Arabia Residential Survey 2022